Tariffs rattle South Carolina's manufacturing supply chain

Even before the bulldozers began turning farmland into new jobs, the news shook corporate offices around the world, inviting them to build new manufacturing plants in a state where no automaker had gone before.
Wochit

A year after BMW's announced $600M expansion of its Greer plant, a looming global trade war casts uncertainty on South Carolina manufacturing

BMWs roll off rail cars that have carried the vehicles from the manufacturing plant in Greer, S.C., to a seaside terminal in Charleston run by the South Carolina Ports Authority. The vehicles are taken from there by ship to ports around the world.(Photo: South Carolina Ports Authority)

BMW has expanded its workforce and invested at least $50 million into its Spartanburg County plant over the past year — so far making progress on a promise to invest $600 million there between 2017 and 2021.

One year ago, American and German dignitaries gathered at the BMW Manufacturing plant outside Greer to celebrate the regional economic renaissance brought about by the automaker's arrival in 1992. But even as production associates rolled out the latest X3 model and BMW Group Chairman Harald Krüger emphasized the company's ongoing commitment to the state, another topic loomed that day: tariffs.

“If you build a BMW in Mexico, or a car in Mexico, and you sell it to Europe, there’s no tariff. If you build a car in the United States and you sell it to Europe, there’s a 10 percent tariff," U.S. Sen. Lindsey Graham said at the celebration a year ago. "What if we had a treaty with Europe so that every car made in America could be sold in Europe without a tariff and vice versa?"

But instead of more free trade since that optimistic day one year ago, the United States has slipped into a trend of protectionism led by President Donald Trump, which experts say is hurting BMW both coming and going.

This spring, the Trump administration imposed tariffs on raw steel and aluminum — key components for BMW and its suppliers. These tariffs, friendly to steel mills located inside the United States, affect the supply chain from all but a handful of countries that secured exceptions.

BMW declined to comment on the impact of these tariffs last week, but another Trump proposal — to impose a 25 percent tariff on imported auto parts — would be a certain blow to the Spartanburg plant. The engines of the roughly 400,000 SUVs manufactured annually in South Carolina come from Germany and Austria.

That proposal, which the president put forth in late May on grounds of "national security," remains under review.

Longtime Greer Mayor Rick Danner said that tough words about protectionism at the national level cause uncertainty not only for companies like BMW but also their dozens of suppliers, not to mention global companies like GE, Electrolux and Samsung.

"We have a very international community here, and there are suppliers from around the world located here," Danner said. "Anytime there is saber rattling at the national level, there is a certain amount of fallout and uneasiness about what the long-term implications of that are."

One person close to the president, Gov. Henry McMaster, who was at the BMW celebration last year, did not respond to comment for this story. He is hosting Trump on Monday for a rally in Columbia in support of his re-election campaign. His opponent, Greenville businessman John Warren, spoke out against tariffs on steel and aluminum during a runoff debate in Newberry last week.

Steely problem

Advanced manufacturers like BMW conduct trade across borders constantly, said John Lummus, president and CEO for the Upstate SC Alliance, a group that markets Upstate counties to potential investors.

"They have to get goods and imports from a lot of different places to make a product," Lummus said. "We are truly in a global supply chain."

The impact of the steel and aluminum tariffs on South Carolina's economy will be significant, according to the nonpartisan Tax Foundation. South Carolina businesses imported nearly $550 million worth of aluminum and steel last year.

With the tariffs, the cost on those metals would increase by $106.7 million.

The measures are meant to protect American steel mill jobs, but the metals industry is not nimble enough for manufacturers to shift all their purchasing stateside, said Anthony Tosti, chief financial officer of tooling manufacturer Greenfield Industries.

"Raw" metals, he said, are supplied at specific custom alloys, cut to specific lengths and widths according to the various tolerances and applications that parts manufacturers need. This creates a highly customized supply chain deeply disrupted by sudden shifts in costs.

U.S. mills produce about 20 percent of the so-called "high-speed" steel that American manufacturers need, Tosti said, which is why his and other plants seek it overseas.

Greenfield Industries, he said, was close to going out of business in 2009 when Chinese conglomerate TDC Cutting Tools bought the company and poured capital into it. That saved more than 100 jobs, and another 200 people work there today.

"We have things in place that will keep our heads above water," Tosti told The Greenville News last week. "Luckily, it's a good economy."

But, he said, "long term, if it were to continue, it definitely adds to the possibility of considering doing overseas production."

Foreign money supercharges SC economy

The arrival here in the early 1990s of BMW, one of the most famous brands in the world, made South Carolina a star, said Aaron Brickan, senior vice president for strategy and development at the Organization for International Investment, an advocacy group for foreign companies investing in the U.S.

But, he added, South Carolina was has long been recognized as a hotbed of foreign direct investment (FDI), having set up recruiting offices abroad four decades ago. With companies like Daimler, Volvo, Michelin, Continental and Giti setting up shop here, no state has been more successful at attracting FDI, he said, and FDI Magazine named South Carolina tops in per capita foreign investment in 2016 and 2017, ahead of the likes of California and Florida.

BMW Manufacturing in Spartanburg.(Photo: FRED ROLLISON/File)

More than 133,000 jobs in South Carolina — 6 percent of the workforce — are directly supported by foreign companies, according to Select USA, an FDI program of the U.S. Department of Commerce.

"The uncertainty of these tariffs changes the story somewhat because fundamentally it causes companies like BMW to question whether or not their investments will be profitable," Brickman said. "They spent billions, BMW and other companies, in South Carolina, so it's a tough situation."

Greenfield is among more than 400 auto-related firms in South Carolina, according to the state Department of Commerce. Of those, about 40 built facilities in the Upstate to be close to BMW, and dozens more have moved to the region to supply those 40, according to News reports from BMW's 25th anniversary celebration one year ago.

"When you start talking about tariffs, it creates uncertainty," reiterated Adrienne Fairwell, spokeswoman for the state Department of Commerce. "Uncertainty definitely brings concerns. That's what you are hearing right now. South Carolina is a free-market state, and anything that affects the free market has impact."

BMW continues investing

BMW's annual impact on South Carolina's economy exceeds $16 billion annually, according to a 2014 report from the Darla Moore School of Business at the University of South Carolina.

That impact is likely only to increase with the plant's ongoing investment at its site in Greer. The plant released three new car models over the past year, with major updates to its X3, X4 and X5 vehicles. An additional model — the X7 — is due for release at the end of 2018. The largest BMW X model ever made, it will have three rows of seats.

Since 1992, BMW has spent nearly $9 billion on its 144,000-square-foot plant on State 101, said plant spokeswoman Sky Foster.

"Out of 25 years of production, this is nearly as big a year the plant has ever had," Foster said. "To launch one new car is certainly quite important. You want to make sure the quality is perfect on every model that goes out."

According to a Greenville News review of public records, BMW spent at least $52 million just over the past year on electrical, plumbing and construction work at the Greer plant, and this does not include the new robots and conveyor systems that plant spokesman Steve Wilson said BMW added to the expanded X3/X4 assembly hall.

"We've added hundreds of new robots," Wilson said, adding that the plant has also doubled the size of its two-year maintenance tech training program to keep up. "People are excited."

Greer's Danner said his impression is that the people working at BMW take the talk of tariffs with a grain of salt, preferring instead to focus on what they do. Last year when Trump first talked talked about tariffs on German cars, German newspapers and a German radio station reached out to Danner for comment.

"That literally became international news," Danner said. "So I think we have to be sensitive to the fact that we don't need to talk lightly about these issues because the world is watching."